Institutional Change And Executives Behavior

The Securities Commission of the State Council and China Securities Regulatory Commission was established in October 1992, which marks China began to establish a national unified regulatory system in its capital market. After that, Public offering by the Shanghai and Shenzhen are popularized to the whole country. In more than twenty years, China’s capital market experiences from small to large with a rapid development and continues to strengthen the institutional infrastructure, laws, regulations and market supervision system of continuous improvement. The development of Chinese capital market plays an increasingly important role in economic and social development. Meanwhile, the level of capital market improves gradually,such as setting up the SME board in the Shenzhen Stock Exchange in May 2005 and after a long preparation of GEM in October 2009 officially opened plate. Thus, with the rapid development of Chinese economy, China has also experienced a listed company changes from zero to one, also from less to more.At the same time, the Chinese capital market is born out of a market economy in the transition process, which started from the pilot to gradually grow up in emerging capital markets, and thus the relevant legal system and regulatory policy has been in constant change. This paper focuses on China’s capital market study corporate governance issues in the transition background of China. Considering the corporate governance issues, this paper focuses on the behavior of executives of listed companies, and how this behavior is affected by policies. The behavior of listed company executives for the operating results and the impact of the stock market are increasingly important with the advance of market process, so the behaviors of executives become an important object of this study. We know that the important motivation for executives is to maximize the benefits from the act, and we also find that reduction of the original shares are increasingly important for executives concerned with the widespread implementation of equity. Therefore, we studied the behaviors of senior executives from a cash-out perspective. However, we cannot directly observe the motivation behind the behavior of executives. Thus, we can examine the motivations through the behavior of executives.Firstly, we studied the behavior of cash-out of executives in a unified framework with the consideration of Chinese institutional context. Also, we use the policy changes to design a identification strategy to identify the motives, and these strategies will help us identifying the hidden motives of those executives. Meanwhile, we test the stock market reaction to the hidden motives. Therefore, we studied consequences caused by the policies, and the consequences are not perceived by the stock market. The conclusion provides a theoretical basis for us to assess the impact of relevant policies.Secondly, We investigate whether and how motivation for cash-out affects the executive turnover in China. Due to data limitation, we are unable observe the motivation directly, and then we design the identification strategy based on the changes of lockup policy and the discontinuity between the timing of resignation and lock-up period. We find that, compared to the executives without shareholding, the timing of the executives with shareholding reacts significantly to the changes of lockup policy and take advantage of discontinuity of lockup policy to shorten the lock-up period. Moreover, we investigated the impact of type of employment for senior executives to their resignation and the stock reaction.Thirdly, Based on the introduction of the tax policy on transfer of individual restricted stock, we make a new proposal that the purpose of higher stock splits is to lower the tax-due of individual restricted stock. With firm-level data of China’s small and medium- sized enterprise board between 2004 and 2012, we provide evidence that the decision to implement higher stock splits is related to tax avoidance. We find that, after the implementation of the tax policy, firms that have more circulation of individual restricted stock are more likely to have high stock splits, while there is no such kind of effect for the legal person restricted stock. In addition, the proportion of implement of the stock splits after the circulation of restricted stock, especially during May, increased 39 percent significantly relative to the pre-reform years. Lastly, in order to achieve the purpose of tax avoidance, the firms would extend the interval, about 8 days, between date of shareholders’ meeting and implementation date of the stock split.